Correlation Between Lion One and Diageo PLC

Can any of the company-specific risk be diversified away by investing in both Lion One and Diageo PLC at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Lion One and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lion One Metals and Diageo PLC ADR, you can compare the effects of market volatilities on Lion One and Diageo PLC and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Lion One with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lion One and Diageo PLC.

Diversification Opportunities for Lion One and Diageo PLC

-0.31

Correlation Coefficient

Lion One  Diageo PLC

Very good diversification

The 3 months correlation between Lion and Diageo is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Lion One Metals and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR and Lion One is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Lion One Metals are associated (or correlated) with Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of Lion One i.e., Lion One and Diageo PLC go up and down completely randomly.

Pair Corralation between Lion One and Diageo PLC

Assuming the 90 days horizon Lion One Metals is expected to generate 4.34 times more return on investment than Diageo PLC. However, Lion One is 4.34 times more volatile than Diageo PLC ADR. It trades about 0.0 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.15 per unit of risk. If you would invest  40.00  in Lion One Metals on March 3, 2024 and sell it today you would lose (3.00) from holding Lion One Metals or give up 7.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Lion One Metals  vs.  Diageo PLC ADR

Lion One Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lion One Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Lion One is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Diageo PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Lion One and Diageo PLC

The main advantage of trading using opposite Lion One and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lion One position performs unexpectedly, Diageo PLC can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Diageo PLC will offset losses from the drop in Diageo PLC's long position.

The idea behind Lion One Metals and Diageo PLC ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Content Syndication module to quickly integrate customizable finance content to your own investment portal.